what happens to house prices during a recession

Hi everyone

just wondering what peoples opinions are on what would happen to house prices IF Australia went into recession. And this combined with the new APRA regulations??
 
In my opinion, we are pretty much already in one.

Not officially and by the technical measurements, of course.

And yet; r/e is booming in a lot of areas around Aus.

In a true recession, I predict the r/e will simply go flat.

There will always be the small percent of distressed sales - more at the higher end than the lower during the bad times, and the higher end are more extreme as a general rule.
 
I agree with BayView.

What we haven't seen yet, is the full extent of the lower AUD. Imagine if it drops even further, what effect will this have on foreign buyers? Suddenly everything is half price.

Couple this with the lower cost of Australian education, which is a big drawcard. There will be more parents in the market to buy somewhere for their kids to stay. FIRB be damned.
 
I agree with BayView.

What we haven't seen yet, is the full extent of the lower AUD. Imagine if it drops even further, what effect will this have on foreign buyers? Suddenly everything is half price.

Couple this with the lower cost of Australian education, which is a big drawcard. There will be more parents in the market to buy somewhere for their kids to stay. FIRB be damned.
love the positiveness on Somersoft, everything is a boom lol.

if there is a recession prices will go down.

If people are losing their jobs, confidence is shattered, banks are tightening lending standards, house's being foreclosed etc etc, property ain't gonna go up..

I'm sure there will be hundreds of people saying that they will use a recession to buy bargains and make lots of cash, but the story will be different when it actually happens. As their LVR's and their banks willingness to lend will change.
 
love the positiveness on Somersoft, everything is a boom lol.

if there is a recession prices will go down.

If people are losing their jobs, confidence is shattered, banks are tightening lending standards, house's being foreclosed etc etc, property ain't gonna go up..

I'm sure there will be hundreds of people saying that they will use a recession to buy bargains and make lots of cash, but the story will be different when it actually happens. As their LVR's and their banks willingness to lend will change.

In Perth it isn't even the elephant in the room anymore.
It's happening and nobody wants to talk about property at barbecues these days.
 
List of Australian Recessions:
Start Finish
1 Apr 1961 30 Sep 1961
1 Oct 1971 31 Mar 1972
1 Jan 1974 30 Jun 1974
1 Jul 1975 31 Dec 1975
1 Jul 1977 31 Dec 1977
1 Oct 1981 30 Jun 1983
1 Oct 1990 30 Jun 1991

Interesting to note how little time a recession runs for - approx 6 months only (apart from the 1981-1983 one).

I'll do some extra research when I get some time, to see how property prices were affected.
 
just wondering what peoples opinions are on what would happen to house prices IF Australia went into recession.
When people are unsure/concerned about the future they usually do nothing/hibernate/stay put. I'd say turnover will fall, the few who must sell may have to cut prices. Banks will still lend, but maybe have higher servicing/deposit requirements, OTOH they will all be fighting for the reduced amount of new business. The REAs will return calls & there may be the occasional bargain for cash buyers (inc those from O/S as the AUD$ will probably be lower making assets here better value).

And this combined with the new APRA regulations??
My understanding is that APRA has told the banks to reduce their growth in Investor Lending to below 10% or face tighter regulation. The big 4 are currently at v. close to 10% anyway (CBA slightly below, NAB at 13%, WBC & ANZ at 10.2%ish). APRA is also insisting on servicability calcs using IR of 7% (or current+2%) & no IO loans to OOs & a couple of other things.

The banks appear to be implementing these APRA requirements by reducing LVRs and/or increasing servicability calcs among others - the brokers can add others... ?

IMO these new bank policies will affect a tiny minority of Investors (although a much larger %age of SSers). It will affect an even smaller %age of OOs. So I don't really see the APRA regs affecting prices much at all. More important will be what the RBA does & how much is passed on to us.

If houses prices continue to fall (as RPData tells us they did in April), then I would expect APRA to quietly put its big stick away for a while. Nobody wants falling house prices.
 
List of Australian Recessions:
Start Finish
1 Apr 1961 30 Sep 1961
1 Oct 1971 31 Mar 1972
1 Jan 1974 30 Jun 1974
1 Jul 1975 31 Dec 1975
1 Jul 1977 31 Dec 1977
1 Oct 1981 30 Jun 1983
1 Oct 1990 30 Jun 1991

Interesting to note how little time a recession runs for - approx 6 months only (apart from the 1981-1983 one).

I'll do some extra research when I get some time, to see how property prices were affected.
Also have to add the Paul Keating resession, the one we had to have.
 
love the positiveness on Somersoft, everything is a boom lol.
I've been spruiking economy d&g for a while.

I have my doubts as to the success of this latest $20k stimulus; you need to be able to service the $20k for a start, and you need to be making a decent taxable profit for it to be an incentive for folks to do it.

The next Quarterly figures will be interesting.

if there is a recession prices will go down.
Yes. Maybe not as much as folks assume - not from my experience anyway; it'll be wise to keep a close eye on a particular area, and wait for the inevitable distressed sales.

I think Sydney will be more prone; given what's occurring right now. Lots of higher-end folks will lose their jobs, and the very large mortgages will have to go...maybe a lot of nice cheap boats, too!!

If people are losing their jobs, confidence is shattered, banks are tightening lending standards, house's being foreclosed etc etc, property ain't gonna go up..
This is occurring right now as we speak - and has been for a while - from my anecdotal experiences (the tightened lending is new; fuelled by the recent booms in r/e after the last 2 IR drops. And another tomorrow?)

I'm sure there will be hundreds of people saying that they will use a recession to buy bargains and make lots of cash, but the story will be different when it actually happens. As their LVR's and their banks willingness to lend will change.
True; it is a good time to use these IR drops to lower LVR's, build up cash buffers, and get ready.
 
List of Australian Recessions:
Start Finish
1 Apr 1961 30 Sep 1961
1 Oct 1971 31 Mar 1972
1 Jan 1974 30 Jun 1974
1 Jul 1975 31 Dec 1975
1 Jul 1977 31 Dec 1977
1 Oct 1981 30 Jun 1983
1 Oct 1990 30 Jun 1991

Interesting to note how little time a recession runs for - approx 6 months only (apart from the 1981-1983 one).

I'll do some extra research when I get some time, to see how property prices were affected.
They may not run for long, but it takes a while for folks to warm up and start to spend afterwards.

Keep in mind that even in this current climate - which is not officially a recession - many folks have stopped spending on lots of things - going away on holidays, higher end white goods, and so on...like what Keith said; folks close up shop and hang on.
 
People love to paint these things as some catastrophe. We've had two world wars in a century and more regional wars. What happens? Life goes on.
 
List of Australian Recessions:
Start Finish
1 Apr 1961 30 Sep 1961
1 Oct 1971 31 Mar 1972
1 Jan 1974 30 Jun 1974
1 Jul 1975 31 Dec 1975
1 Jul 1977 31 Dec 1977
1 Oct 1981 30 Jun 1983
1 Oct 1990 30 Jun 1991

QUOTE]

I just had a quick look at some Adelaide historical data ('cause I like to live in my own little bubble)

1981-1983 saw 22.6% growth with the median house price increasing from $39,100 to $47,950 (interest rates hit 13.5%, and inflation was 11.8%, hhhmn, so on face value looks good but actually only just kept up with inflation).

1990 - 1991 saw 5% growth with median house prices going form $63,100 to $66,400 (March of 1990 standard variable interest rates hit 17% and inflation 5.3% so in real terms your investment went nowhere)
 
I just had a quick look at some Adelaide historical data ('cause I like to live in my own little bubble)

1981-1983 saw 22.6% growth with the median house price increasing from $39,100 to $47,950 (interest rates hit 13.5%, and inflation was 11.8%, hhhmn, so on face value looks good but actually only just kept up with inflation).

1990 - 1991 saw 5% growth with median house prices going form $63,100 to $66,400 (March of 1990 standard variable interest rates hit 17% and inflation 5.3% so in real terms your investment went nowhere)
Yeah Erica, the last 2 recessions that I can recall, property prices went UP.
 
a recession is really not that big of a deal. its part of the fluctuation in the short-term debt cycle. If its a short unsustained one, then it may not have much of an effect on house prices. There is always a lag between when an economy goes down and people losing their jobs and going into arrears and then foreclosures or sales, bank credit tightening , etc etc.

however if a depression does come around, which is part of the deleveraging in a long term debt cycle, then property prices will really take a big hit.

Given interest rates still have 2% more to go and other stimulus options like "printing" more money and a debt/gdp of only ~30%, Australia might not have reached the peak of its long term debt cycle and a big deleveraging of credit may not happen for a while yet, barring any big triggers like interest rate rises or another GFC.
 
....however if a depression does come around, which is part of the deleveraging in a long term debt cycle, then property prices will really take a big hit.
Depressions, I was given to understand, have an 80 year cycle. Just like RE has 7-12 year cycles.

Given that there was a depression in 1930, it should have been expected to arrive around 2010. It got here in 2008 in the form of the GFC, close enough I suppose. But that one, you could argue, is largely gone now.
 
What happens? Prices go up, down and sideways. The economy obviously plays a significant factor into house prices, but various other factors come into play which can outweigh any one short term factor.

The market pricing of property isn't as fast to move as the share market's pip - so you can find that even in entering a recession certain markets can continue their boom before the greater economic factors come into play - likewise when exiting a down period the prices can linger until capacity is built up to enable another surge.
 
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